The Real-Life Secrets Of Millionaires By Kimberly Palmer
June 10, 2015 9:00 AM
Several years ago, New York Times Wealth Matters columnist Paul Sullivan opened up his finances to a group of high-powered, high-net worth investors known as Tiger 21. Members gather regularly to discuss investing strategies and at one meeting, Sullivan asked them to critique his own -- relatively meager by their standards -- financial life.
"Given what I do, I thought [my wife and I] had a handle on it, but what I learned from that meeting is that we hadn't thought enough about the risks in life," Sullivan says. Those risks include declining incomes and the unexpected death or disability of a household wage earner.
As a result of that meeting, Sullivan and his wife took out life and disability insurance policies and sold off a condo in Florida that had been a vacation home for the family.
"They were so direct and harsh about that being a possible drain, if we weren't able to sell it if something bad happened. That was a wake-up call," Sullivan says.
The lessons he absorbed from that wealthy, exclusive group of over 300 members across the U.S. and Canada led Sullivan to write his new book, "The Thin Green Line: The Money Secrets of the Super Wealthy." The title refers to the security that can come from knowing you're prepared for a negative event, like a layoff, no matter how much money you have or earn.
"The people in the book who I call wealthy, whether they're a teacher or a hedge fund manager, are wealthy because they have security. They have behaviors around money that let them be in control of their lives when something bad happens," he says.
Those behaviors, Sullivan says, can be learned or even adopted later in life. As someone who grew up without much money, he says it took him a long time to have a healthy relationship with it.
He would avoid credit card debt and overspending so assiduously that he often wore threadbare clothing and skipped even affordable purchases he would have enjoyed. "You should be able to spend money on things you enjoy. If you love $4 Starbucks lattes, then buy it," he says.
If you're looking to adopt some secrets of the wealthy, Sullivan suggests the following strategies:
1. Focus on the things you can control, not what you wish you did in the past. "Too many normal Americans think, 'I wish I bought Apple stock 15 years ago' -- that's the wrong way to think.
You can't control that," he says. But you can control how much money you save each month. So instead of fretting over specific stock picks, just put your money into a broadly diversified portfolio and forget about it while it grows slowly over time.
2. Load up on insurance. Term life insurance is very cheap, Sullivan points out. While there is a low probability of a family breadwinner dying early, it would be disastrous if that were to occur.
Sullivan suggests asking, "How many years will the surviving spouse need to get back on his or her feet?" Paying around $400 to $500 a year for a basic policy can help alleviate that risk.
3. Don't worry so much about taxes. "People waste a lot of time obsessing about taxes," Sullivan notes. Instead, he recommends sitting down with an accountant to figure out your tax rate -- and then accept it.
4. Find a fee-only financial advisor . "A bad advisor is worse than no advisor, so find an advisor who is really going to act in your best interesting," Sullivan says. Fee-only advisors are obligated to work in clients' best interest and are not paid based on products they sell to clients.
5. Get your 401(k) benefit. Take advantage of any 401(k) plan your workplace offers, Sullivan says. If you put in even a small percentage of your paycheck each month and your employer matches it, you'll slowly build a nest egg for retirement.
6. Spend on what makes you happy . After the Tiger 21 meeting, Sullivan says he became mindful of the purchases that brought him joy. "What I really like is to go out to dinner and have a nice bottle of wine once or twice a month," Sullivan says, so that is what he and his wife do.
At the end of the day, Sullivan says, it's not earning a lot of money that makes you wealthy. "There are people on the wrong side [of the thin green line] at the top of their earning potential," he says.
Even from where he sat at a tennis club near his home in Connecticut during the interview, he says, "there are people all around me who are in the process of making horrendous decisions every day.
They have too many cars, giant homes. But it's a house of cards. If the bonus doesn't come in, they could be in a lot of trouble when they shouldn't."
In fact, he says, one of the wealthiest people he knows is his aunt, a retired schoolteacher who lives in Western Massachusetts. "She has a pension, some investments and she gets to do everything she wants. She volunteers at a church, spends time with her grandkids and goes on one big vacation a year," he says. You're truly wealthy, he adds, when you have enough money to do all the things you want to do.
Where Should You Keep Your Emergency Fund?
Credit.com By AJ Smith
We have all heard and (hopefully) heeded the advice to keep between three and six months' worth of expenses aside as an emergency fund. Even if you feel like you have a handle on budgeting for your day-to-day expenses, what happens when the unpredictable hits with the potential to set your finances back?
This stash is not meant for buying a home or going on a trip, it is for real emergencies. It's a good idea to make growing an emergency fund a priority and where we keep this money can make a big difference.
It's important for the money to be accessible, but it can also be earning interest while waiting to be tapped. If you are building up your emergency fund and looking for a better place to keep it than under the mattress, check out these options of places to park your emergency fund.
Online Savings Account
Traditional savings accounts can be great for those of us who like to play it safe, but interest rates will not do much for you. Online banks do tend to offer slightly higher rates and lower fees so you could see a little more growth.
Furthermore, it's important to keep your emergency savings fund away from your normal checking account so you have some separation between your spending cash, cash for other savings goals and your emergency cash.
Money Market Account
This is a common place for emergency funds for those looking to get better interest rates. They are similar to regular savings accounts in terms of FDIC insurance and limits on the number of withdrawals you can make each month, but typically require a higher minimum deposit and they sometimes carry higher fees. It's a good idea to read the fine print before choosing which account to keep your emergency fund in.
Since you need the money to be accessible, regular certificates of deposit with established time limits are not always going to work, but there are some no-penalty options.
These typically have lower rates than traditional CDs, but offer higher yields than traditional savings accounts. You just need to look for banks that offer these and, again, read the fine print carefully.
These are also typically seen as a long-term investment, but I-bonds can offer more flexibility. You can own some for as little as one year and do not need much capital to get started.
The interest rate is better than other, more liquid vehicles but the interest is taxable and if you need to cash them in before five years, you will forfeit some of the interest you have earned.
Most experts will tell you to avoid touching your retirement savings until actual retirement. This is generally good advice as you want to make sure you have enough money left to fund your golden years. But if you have to tap your retirement funds for emergencies, it's good to understand the different tax implications and penalty fees associated with each type of account.
401(k) accounts generally (there are exceptions like the Roth 401(k) option) hold funds that you contributed before paying taxes. So if you take out money before you are 59½ (besides for a few particular exceptions) you will have to pay an early withdrawal penalty and taxes.
Since you contribute to a Roth IRA account with after-tax money, you may still pay a penalty but can withdraw the original contributions (not the interest earned) without paying additional taxes.
Where you keep your emergency fund is up to you, and you may even choose to use a combination of locations to ensure your stash is safe, liquid and reliable. Do your research before carefully considering the best location for your money — there is no one right answer, just as long as you have a place for it.